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Rule #1 British Tax for Expatriates

Rule #1 British Tax for Expatriates

On the 19th of August 1985 my accountant, Peat Marwick, wrote me a letter stating that Inland Revenue had questioned my domicile and sent me a questionnaire.

The vast majority of people in the UK are not required to submit income tax reports. The certified accountants representing the various companies, banks, shops etc. were required to audit the payrolls and confirm to the government that the individuals were taxed at the source.

As an expatriate my situation was different. My salary was paid in the USA and subject to reporting to the IRS. I furnished this to my accountant in Scotland by April 15 each year.

Consarc paid me a bonus, usually in June, after the close of their tax year on April 30. This income would show up for tax reporting in a W2 form issued the next year. This caused some confusion with my accountants because they were required to show current year income.

The British tax authorities allowed days out of the country to be tax free with the taxes paid based on the amount of time in Great Britain. This was a considerable reduction in tax for me so the detailed accounting was furnished before the end of August 1985.

The rules at the time allowed that only 25% of the qualified income base be taxed for the first year (1983) and 50% of the qualified income be taxed for the second year (1984). For the year 1985 I would be subjected to the full amount of the qualified income.

Interest on money not on deposit in the UK was not counted as income. My cash was deposited in the tax haven banks on the Channel Islands.

Rule #2 US tax returns.

I filed my tax forms in the USA by April 15 with a $80,000 deduction because I qualified for working out of the country and reporting to another taxing authority in countries with tax treaties with the US.

Rule #3 Out of country 330 days.

The tax rules at that time allowed an American taxpayer to deduct about $80,000 from their earnings if they were out of the country 330 days in any 365 day period. I did not have to be a calendar year. In figuring when money was earned it was necessary to keep accurate records and retain a qualified tax man to fill out the complex return.

TRERE ARE MANY LOOPHOLES IN THE TAX LAW AND I WILL USE THIS PAGE TO COVER MORE LATER.